Add TBT Calls

Plus: Close BG and DO for Good

By Bryan Bottarelli
Monday, August 03, 2009 10:32 AM EDT
Mon, 3 Aug 2009 14:32:00 GMT

PLAY: Buy the TBT August 50 Calls (TBT HX) at or under $2.30, good for the day. Place a protective stop limit at $1.20 and a sniper sell at $4.00.

Dear Bottarelli Research Member,

Good morning. After the first hour of trading, it appears like August will continue the unrelenting upside gains that we saw in July. It’s truly hard to believe, but the markets only have one direction right now, and that direction is up. Every single analyst on TV is forecasting higher prices. Of course, they all hedge themselves by saying “there will be bumps in the road,” but the fact remains: Everyone feels we’re going higher. The SPX, for example, is about to break 1,000. See below:

SPX

Just this morning, I received a note from a member that said, “it’s starting to feel like Dow 14,000.” Based on the trading tape over the last month, I can’t argue with that statement. It truly does feel like we’re on a one-way ticket to the moon. So here’s what we’re going to do. First off, now that every investor seems comfortable enough to jump back into the markets, this sets up a negative trigger for Treasuries, noted by the iShares Barclays 20+ Year Treas Bond (TLT – NYSE) below.

TLT

As the first order of business today, let’s get positioned in the Ultra Short 20+ Year Treasury Pro Shares (TBT – NYSE), which move at the rate of o twice the inverse of the Lehman Brothers 20+ Year U.S. Treasury index. The in-the-money August 50 Calls look very well priced in the low $2.00 levels. Let’s add them for a quick upside play now.

TBT

PLAY: Buy the TBT August 50 Calls (TBT HX) at or under $2.20, good for the day. Place a protective stop limit at $1.20 and a sniper sell at $4.00.

At the same time, let’s officially close off our BG August 65 Puts (BGW TM). The downside move in the commodity sector last Wednesday was yet another false high, and was quickly bought up based on overseas strength. If you haven’t already done so, close off this position now. Sell. The same goes for our DO August 90 Puts (DO TH), which also failed to extend upon one day of downside pressure. Sell.

This leaves us holding the ICE August 100 Calls (IHH HT). The company is scheduled to report earnings before the open of trading tomorrow, with an EPS estimate at $1.13 per share. Typically, you see a run-up in price leading into earnings reports like this, so let’s see if this pattern comes into play today. Depending on how the trading action goes, we’ll make a decision on what to do with our calls going into tomorrow.

ICE

As always, I’ll keep you updated throughout the session.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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